New York Stock Exchange trading history for profits

AS the NYSE moves into electronic trading, floor trading may be a thing of the past. Picture / Reuters

NEW YORK - More than two centuries ago, 24 brokers signed an agreement laying the groundwork for the New York Stock Exchange. This week, the exchange's 1366 members will rebuild that foundation.

The vote on the NYSE's proposed purchase of Archipelago Holdings, an electronic market based in Chicago, will transform the world's largest stock market into NYSE Group, a publicly traded company.

Each member will receive US$5.14 million ($7.16 million) in NYSE Group stock and cash. The payment will end a form of ownership that dates back to the Buttonwood Agreement, a 1792 accord named for the tree on Wall Street where stock trading took place.

"It's a tug at the heartstrings," said Bob Shaw, an NYSE member since 1960, from his home in Stuart, Florida.

"There is no question that there is a certain amount of nostalgia to it, but it's the dollars and cents that make the difference."

About 90 per cent of members may vote in favour of the deal, says Shaw, 78, who surveyed 300 of them last month. He supports the takeover.

William Power, a member since 1987 who sits on the NYSE's advisory board of executives, and James Maguire, a 56-year Wall Street veteran and a specialist at LaBranche & Co, concurred with his projection.

"It's a fantastic piece of history," said Francis Maglio, 61, a former broker and a member since 1973. "To walk on the trading floor as an owner - as one of 1366 owners - and transact business for customers is just irreplaceable in my mind."

Brokers signing the Buttonwood Agreement, a two-sentence document, agreed to give each other priority in trading. The first NYSE constitution was adopted in 1817. In 1971, the Big Board incorporated as a not-for-profit company owned by the members.

The switch to public ownership follows similar shifts across Europe and Asia in the past five years. The shares of Nasdaq Stock Market, the NYSE's biggest US competitor, have traded since July 2002.

NYSE Group will become the world's second-biggest publicly traded stock exchange by market value at US$9.51 billion, based on Archipelago's close of US$60.38 a share. Deutsche Boerse is the largest at US$10.7 billion. The Big Board is No. 1 by the total market values of companies listed.

The exchange will replace memberships with 1000 to 1366 annual trading licences. The exact number and price of the licences will be determined through an auction every December.

NYSE chief executive officer John Thain may have more control after the vote because he won't have to forge consensus among members - mostly retired brokers, their wives or heirs, according to Power and Maguire.

About 930 members lease their memberships, conferring the right to trade on the floor, according to a regulatory filing.

"It makes life easier to have shareholders with a clear profit motive, rather than members who have an axe to grind about how business is done on the exchange," said Narayan Naik, a finance professor at the London School of Economics. "I don't think the NYSE had a choice."

This week's vote will leave approval from the Securities and Exchange Commission as the final obstacle. Thain told members at a meeting last week that he expected the deal to be completed in January.

Each NYSE member will receive 80,177 shares of the combined company and about US$300,000 in cash.

"The NYSE brand name alone is worth US$80 to US$90 a share, if it's properly managed," said Maguire, 75, and a specialist for shares of Warren Buffett's Berkshire Hathaway. He's been an exchange member since 1972.

The price of a membership, also known as a seat for the chairs assigned to traders until 1871, has quadrupled this year to a record US$4 million. A membership in 1792 cost US$25, according to Charles Geisst, author of Wall Street: A History.

The Archipelago deal may herald the end of the NYSE's floor, where trading is refereed by a specialist, says John Steele Gordon, a business historian. The takeover parallels the Big Board's merger with the Open Board of Brokers in 1863, which caused the NYSE to abandon twice-daily stock auctions for the continuous trading done by the Open Board.

"Here we have a new electronic system that is more efficient," said Gordon, author of The Great Game: The Emergence of Wall Street as a World Power. "I suspect the floor will actually disappear."


NYSE's story
* The founding of the NYSE dates back to the Buttonwood Agreement signed in 1792 by 24 brokers.
* The first NYSE constitution was adopted in 1817.
* In 1971, the Big Board incorporated as a not-for-profit company owned by the members.
* 1366 members are now about to vote to go public and electronic.
* Each NYSE member will receive 80,177 shares of the combined company and about US$300,000 in cash.

- BLOOMBERG